January 22, 2010

  • Tax Deductions for Dummies

    taxrefund Tax Deductions for Dummies

    I’ve been paying income tax for almost forty years. I always used the EZ tax form, since I’m single, and don’t have investments or own property. In fact, up until February of 2009, I never owned a home. I always rented apartments and houses, and watched the rent money disappear, while I kept having to move from one place to another when the rent got too high or I needed to get closer to one of the many places I worked.

    I make pretty good money, but I never thought about “itemizing” my deductions, since I didn’t think I really had that many of them in the first place. All my expenses are usually of the “entertainment” variety, and bigscreen TVs and laserdisc collections aren’t deductible.

    Even when I lived with Pat in the early 90s, we filed separately. We weren’t married, and I couldn’t really qualify as “head of household” since we split everything down the middle. I prepared Pat’s taxes for her, since she always paid to have them prepared before I came into her life. I remember thinking that she was getting quite a good deal using her two children to get more money back on her return, especially since I paid a lot of money myself to put food in their mouths and to provide a roof over their heads.

    When the Federal government offered “TeleFile” in the late 90s and early Aughts, I used this simple service, where all I had to do was call out my W-2 amounts and filing information over the phone using prompts, and the tax calculations were done for me. For most of the past decade or so, I would get about a $600.00 to $800.00 refund. The only time I “cheated” on my taxes, and I did this because I was simply uninformed (or naive, if you will) and not deliberately trying to cheat the government out of monies I owed them. It was in 1982, the year FedMart went out of business. I collected a severance benefit equal to about six months pay, and I claimed that, but I also filed for, and received unemployment benefits during that time, and neglected to claim them, so a couple of years later I was audited and had to pay the back taxes plus interest. I was working by then, and it wasn’t a burden, but since then, I have made sure I don’t make any more stupid mistakes regarding what “income” I’ve received.

    Only once did I ever receive a “windfall” in any form, and it was money I knew I would get eventually. My father passed away on the job in 1974, and he was shop steward for the Teamsters union for warehouse workers at his place of employment. The Teamsters were able to get the family about $20 grand for his death benefit, but it wasn’t paid out until 1977. The money was split amongst my two siblings and I, and I got a check for about $6,000.00. I bought a new stereo system and a much needed car (with cash, which was the first and last time that’s ever going to happen). I was unemployed for about a third of that year, so the money really came in handy.

    As soon as I bought my mobile home last February, I knew I would itemize deductions for 2009. No more EZ tax form for the Mikester. I didn’t read up on what was involved. I talked to our accountant and CFO at work, and was prepared to investigate as much as I had to in order to find out what documents I needed, and what forms I needed to fill out. I figured I’d go on the irs.gov website to find the forms.

    Our accountant offered to ‘do my taxes’ for $20.00. This seemed like a good deal, since I’d never itemized before, but I’ve filled out many forms, and though I’m terrible at math, I can operate a calculator and I know how to create an Excel spreadsheet. I talked to our CFO and told her I felt weird about giving our accountant any information about how much money I made. (The CFO does the payroll.) Our CFO advised me to get a computer program like the one she uses to do the company’s taxes. The one she recommended is called TurboTax.

    I’d heard about TurboTax before, but I’d never really thought about using a computer program to do taxes. I did a priceline search yesterday to find the lowest price on the version I needed, which is called “Deluxe Federal + State” and they pointed out that Staples was the least expensive purchase. (The fee for Federal tax online is only $29.99 but filing state costs another $36.00) I found out when I went to the store that the cheaper price was through their website. I paid $49.99 for the program, ten dollars off list, pretty much what Office Depot and Best Buy were selling it for. Turns out this was the best $50.00 I ever spent.

    I installed the program last night, as the rain poured on the roof, and the wind whalloped my home from side to side. (not literally, although it seemed that way from the sound) After it loaded, with my financial statments in front of me, I began to go through the prompt screens. Tax preparation for dummies. Let me tell ya, if you pay for tax preparation, and think it’s too much, and you can follow simple directions, I’d say goodbye to H and R Block and hello to TurboTax. (There’s a less expensive program called “H&R Block Tax Preparation” (previously TaxCut) but I bought the TurboTax because our CFO uses it, and I knew I could ask her questions if any were to arise.)

    Forty five minutes after I installed the program, I was finished. I nearly had a heart attack as I saw the “refund amount” tabulate at the top of the screen.

    $4329.00 Federal refund amount.tax_refund_check (ka-ching)

    I was stymied. Flabbergasted. This is another windfall. How could this be true? I must have made a mistake. I went back through the numbers. Well, I saw where I could have made a mistake. The tax refund would be $1329.00 (which is still twice what I usually get) but I qualified for the “first time home buyer” credit, which is nearly 10 percent of my purchase price of the mobile home: $3,000.00. (I can’t move for two more years or else I have to pay it back.)

    The questions the program asked were about buying a “home”. Nowhere was the term “house” or “property” mentioned. I double checked. I triple checked. There was even a section I filled out about “porperty tax” paid in 2009. Since I don’t own property, I answered “no”. The term “moblie home” never came up in the program, so I was still unconvinced.

    Either I was getting $1329.00, which will do a lot of good reducing my debt, or I was getting $4,329.00, which would nearly obliterate everything except the consolidation amount. I felt as if I’d won the lottery. But I still wasn’t convinced.

    TurboTax quides you through the deduction process. And since it’s a computer program, it remembers for next year, and if you pay for the upgrades (which I don’t know the cost right now, but I’m sure is cheaper than buying the $50.00 program each year) your tax history is all in one place. The program even files the taxes for you online, (although I haven’t gotten to that point yet.) and will do the state taxes. If I had paid over $3,000.00 in medical expenses “out of pocket” last year (I only paid about $800.00) including copayments to my HMO, dental work, and prescriptions, that would have been deductible. This means that if I pay my $3000.00 bill for the hospital stay in 2009 this year in total, it will be deductible on 2010s taxes. Nice to know. With the money I’ll save by paying off a good portion of my debt, I might even be able to do that.

    The interest I paid on my mortage loan was deductible. Also the mysterious “hidden payment” of $1800.00 I had to come up with for “points” is deductible. (If I had bought a hybrid car, that’s deductible). I searched in vain for the receipt from Goodwill when I gave Joel’s clothing away (although that was in 2008). Charity donations are deductible. I even qualified for a $400.00 credit because I didn’t get a $250.00 stimulus check this year, since I wasn’t on Social Security. I wouldn’t have known about this. (I’m sure it’s on the written tax forms, but using the program is just so “easy”, as the Staples ads always say.)

    Besides the fact I still didn’t believe I was going to get almost 5 grand back as a refund, I kind of like doing these “deductions” myself, with the help of the TurboTax program, of course.

    After I saved my work and closed the program, I felt like perhaps 2010 is going to be even better than I’d supposed. I’ve been living in a negative cash flow situation for so long, I don’t remember what it was lke to actually “make” money. I still didn’t believe that the government was going to give me 3 grand for buying my “little house”. So I went over to irs.gov and investigated. Sure enough, a mobile home, even one on “leased space” like mine, is eligible for the credit. A “travel trailer” is even eligible. A  motor home is not. It counts as personal property. So, attention, anyone who bought a “home” as their primary personal residence in 2009 is eligible for a nice chunk of change. Here’s a handy link which explains it.

    On top of the “windfall” from the government this year, I will get $1425.00 back from the mobile home park in February as a refund for the ‘security deposit’ . Besides the $29,000 I owe on my consolidation credit account, I should be able to pay off my overdraft credit card, and nearly all of my other “emergency” credit card amount. 

    As I cooked dinner last night, I didn’t even think “Boy, I can start going to restaurants again.” I thought, “Boy, maybe I can get some more cooking implements” instead. I’m still going to be “frugal”, and might be able to pay my medical bills as they come up. Book that cataract surgery, doc.. Although I’m “seeing” a bit better right this minute. I’m seeing a light at the end of a very long tunnel.

Comments (25)

  • LOL~ I loved this!  I’m just smiling ear to ear for you~ enjoy the windfall!  :coolman:

  • Yay for home ownership!  btw — when I lived in a mobile home, it was suggested that I should crack open a window on the opposite side from the direction of heavy winds — that reduces the pressure caused by the winds and reduces the motion. 

  • So happy that things are working out for you!

  • Good for you Mike.
    I used to teach a unit on filling out your income tax when I was teaching “Special Math” as a young teacher. It was fun to teach, the IRS supplied me with all sorts of teaching materials , and it was a really good way to learn some of the ins and outs of the system.
    I have, of course done my own long-form taxes ever since. I have used TurboTax and its predecessors for many years, but I still am suspicious enough of “canned” programs to also do a mirror image on a Spreadsheet I made out and upgrade every year. TurboTax is always correct – if a little conservative. I also always get a copy of IRS pub. 17 ( a 300 page guide they publish every year – it’s free for the asking) which will answer most of your questions. For example it defines a “Home” as a House, a Houseboat, a Mobile Home, a Coop apartment , or a Condo. (p.105 of last years pub).
    With you, I would also recommend the TurboTax products to anyone who wants to save paying a tax preparer . The IRS has found in a recent study that taxes done that way are more liable to be accurate then those done by any group except CPAs . That guy in the supermarket with a card table and adding machine isn’t really a good idea. I believe the 1040EZ can now be done online for free.
    Incidentally, TurboTax filed electronically will get you your fastest refund.

  • Wow. I want to get a refund like THAT! But I rent… sigh. Interesting post. I really need to get my tax stuff figured out.

  • Congratz!! It’s always nice when you get a nice surprise like that. My parents also bought a mobile home this past year, but they don’t qualify because they have always owned their own home (except for the past couple years after we lost our home to foreclosure in 2007 and they had to move in with my grandparents.) They are really happy to be in their own place now though!

    It feels really good to be able to pay credit cards off.. they seem like a nice idea but man, they catch up quick and when they get too big to handle it feels terrible! I’ve only had 2 cards and I missed a couple payments on one (and I owed a small amount) and wow, the fees were just ridiculous.

    I’m really happy for you! My dad has always used TurboTax too, I think. Just curious what you meant by “hidden payment” for what kind of points?

  • Thanks for visiting! God bless, ~ Pete

  • That sounds wonderful Mike.  I am so happy that things are looking up for you.  I have used Turbo Tax for years and swear by it.  You are going to be so happy when those bills get paid down.  Couldn’t happen to a nicer person.

    Kat

  • Now that is a mighty nice refund and I hope you enjoy every cent when you get it back.

  • Hi Michael:sunny:

    I have been stopping by … but I admit :shysmile: not often!  I have a full happy busy life … but I am working on being more atune with my blogger self as well!

    As you may recall I am not a friend of the IRS and have had a love hate relatinoship and OWE/PAID status on and off for years.

    I too use Tubro Tax … CONGRATS on the good that has come from your decision to invest.  I have said it before and will say it again …. I have many happy memories from the 5+ years Rick and I lived in the mobile home community (including the birth of both children)…good times!

    Thanks for catching up!! I do want to stay connected :coolman:

    REGARDS AND FRIENDSHIP

    Pam

  • That’s pretty swell there, mate. Inspires me to want to focus more on doing better on my taxes.

  • What wonderful news! I hope that it’s the greater amount – you deserve the windfall :sunny:

  • I to have paid but its only because I worked two jobs for years and years and declared both of them but its been a big price to pay as we do all the work…but they collect the money we have worked hard for…I know its for schools and roads and whatever…but I’m glad you’ve finally had a refund…it gives me hope thank you.

  • @slmret - Dear Janet. I do crack windows, and I’ve cracked windows for many years. My last house needed a window cracked in the living room and the opposite dining room, or else I was afraid the windows would break some years. I’ve been in my mobile home for a year now, but I’m still not used to the shaking. The rain on the “tin roof” of the patio and carport is similarly difficult to get used to.

    @tychecat - Dear Dick, Let me tell you, in case I haven’t already, that I really appreciate the comments you’ve been leaving me lately. You’re a “Xanga Treasure” and I’m ashamed I’m not making the time to particpate in the Socrates Cafe these days. (But a lot of time I go online and don’t want to think, you can appreciate this I’m sure, and I always have to put on my “thinking cap” when dealing with philosophy. I can’t file electronically. I think it’s the home buying credit. Somebody at work told me that application for this credit has to be mailed. TurboTax will print out the forms.

    @elgaberino - Dear Gabe, Check for renter’s credit, esp. your state’s return. I used to get $300.00-$400.00 back in renter’s credit until I started making too much money.

    @Fireflywishes - Dear April. When I applied for my home loan I was told I didn’t need to pay “points”. Also known as a “loan initiation fee” this is a fee you have to pay when obtaining a home loan. Sometimes your real estate agent can get the seller to pay the “points”. I’m sure the seller of my mobile home was really upset about having to offer it for $35,000.00. That’s more like buying  a car than a house! I think he changed his mind. Anyway, after I was approved for the loan, I was told I had to pay the points, which was $1800.00. Since I hadn’t been told I’d need to pay them, I didn’t budget this $1800.00 into my payment schedule, which was pretty fragile to begin with. I think it’s neat that at least the money I paid was deductible.

    @Betrayed1959 - Dear Kat, As I age, I do think I’m becoming wiser. :yes: Instead of thinking about what DVDs I was going to buy, or how my car would look with a new paint job, I thought of how much money I won’t be spending when I pay down the credit cards. I’m picking the ones with the highest APR first. I might drive out to see you, however. You “invited” me about a month back. You probably won’t remember since it was a throwaway comment, but I remember everything, as you know from reading my memoirs.

    @MsCatbert2You - Dear Pam, :heartbeat: “Thank you so much for visiting my blog and leaving a comment”. :lol: Did I write “Don’t be such a stranger” on your blog? I know there are people who visit and don’t comment, but I seem to “forget” them when they don’t say “hi”. :wave:

    @SansMerci - Dear Beth, I’ll be getting the full $4329.00 as soon as I send in the tax form and they send me the check. (I can’t efile because of the home buyer’s credit.) The weirdest thing is that I owe $68.00 to the state. However, it would have been over $100.00 I owed without the Turbotax and itemization.

    @rusty5401 - Dear Richard, I only have this much because of the first time home buyer’s credit. I didn’t even think I was going to get it when I first read about it because I don’t own the property on which my mobile home sits. I swear, I feel like I won the lottery or something. These kinds of things just don’t happen to me. I’m used to getting the short end of the stick, and being optimistic that it isn’t shorter. I had to move. My roommate of 14 years died of cancer.  I was his caregiver for the last year or so of his life. Cancer really starts to make a person fall apart (quite literally) in the last 6 months. Anyway, after Joel died, I got a roommate who couldnt’ afford to pay his half of the rent, and on Dec. 31st 2008, he told me he was moving out. I’d been planning on buying a mobile home for five years, and had even inquired about moving here before I turned 55 and qualified to live here. It was serendipitiy that I got this place for only $35,000.00. And having the government “pay” me to buy a home duing the worst financial crisis since the “great depression” (or so they say on the news anyway) is sort of wonderful. I don’t even know who to thank for this windfall. Bush or Obama. I think it’s perhaps Bush.

  • All I can say is cut up those credit cards and never use them again once they are paid off! That’s what I had to do. Plastic surgery baby! It’s the only way!

    I too am making signifigant progress toward getting my debts paid off. I am no longer in a negative cash flow situation either. 2010 is shaping up to look as though it may be a good year. The aughts really sucked for me. I’m glad to leave them behind.

  • I just read your blog and raised a fist in the air yelling, “Way to go, Mike!” I am that happy for you!

    RYC Tho the guy said he still wanted to take me dining, I have not heard anymore from him since January 11th. He must have had second thoughts. Actually, I am relieved.  

  • @baldmike2004 - Mike.  On the contrary…I do remember inviting you and the invitation stands.  You would be welcome in Texas anytime.  I do suggest that mid July Through August might not be the optimal time for a Southern Cal guy.  LOL  The weather during that period around here is HOT and DRY with HOT being the key word.  Most non locals tend to melt.  Enjoy the unexpected money.  You deserve the relief.

  • Mike that is AWESOME!!! Congrats!!!!!!!!!!

  • I’ve been using TurboTax since the first time I did my taxes back in High School. It’s so easy to use, it literally walks you through every possible deduction you could qualify for, and explains each one in understandable words, and on top of that it tells you how much you’ll be getting (both from state and federal) as you go! My favorite feature is how it can e-file your returns, and direct deposit them into your account. Nice!

  • hello Mike. I hope your 2010 started with a bang. Apologies for not being by lately. Been swamped with work and all, but I am so glad to return to grounds where people like yourself write quality posts for us to enjoy.

    Taxes are a drag, arent they? This TurboTax program you’re using sure sounds like a great tool. Haha, though, it sounds like a fierce competitor for us. I am a financial planner, and from time to time, I have affluent clients requiring us to help plan their taxes for filing. We are not certified accountants, but tax planning is something we are able to help with…

    But no matter what means we deploy, I believe it is important to justify not paying more taxes than necessary. I hate taxes.

  • Congratulations on finding all this money. I do the basic handing over of all my tax stuff to my dad and he figures it all up. No program. But its the same every year… single no deductions and i don’t buy anything but normal “stuff” no houses cars or anything.

  • You hit the jackpot!  I like Turbo Tax, although it can be a little confusing for some things.  I almost always end up double checking it, but so far, so good.  I never hit it big like you did – I just have to be glad I don’t owe any more than I do.

  • Hard part of this. Some uses dummies to generate money. 

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